October 2015 Leaders & Laggards

Leadership Leader

Dan Wolterman, CEO for Memorial Hermann Healthcare System in Houston, announced his retirement, scheduled for just over a year from now.

Now, a retirement is seldom cause for accolades. This one, however, bears further mention, and is our clear choice for October’s Leadership Leader.

Full disclosure: Memorial Hermann is a client of ours.

You see, though Mr. Wolterman has been an incredibly successful CEO, his departure has been long-planned, and even then he’s announced it a full year in advance. Not only that, but this outfit has serious bench strength; if I were a betting man, I’d wager chances are good that an internal candidate could be selected as his successor.

But even if an outsider is hired (they have retained Spencer Stuart for the search), the point is this: They (the Board) have choices. They get to consider internal candidates seriously, along with some of the best available external executives in the country. Wolterman takes developing leaders seriously, and he’s got serious talent in his HR/OD shops to support that objective.

There’s some real lessons for succession here:

Go out at the top of your game,

Always be developing leaders for advancement, and

Make sure you have choices when identifying successors (at any level).

Wow, Captain Obvious, did you come up with that on your own? That landmark understatement earned you this month’s Leadership Milquetoast accolades…

He followed with “Our focus now is really on finishing the projects we have under construction, getting our costs down and becoming more balanced.”

I’m curious—isn’t that what we should be doing all the time? Follow through on projects, manage costs appropriately, and make sure our business is on track? History is replete with skeletons of companies thinking their business model would never be altered. Did the Production side of the industry believe that $100 oil was forever, like the post office stamp? In the history of the oil business, when have oil prices not fluctuated wildly and cyclically?

Worldwide demand is significantly lower than anticipated, reducing overcapacity is an expensive game of chicken, and today’s oil price is just under $50, almost 60% less than last summer’s $120. Rig counts are at the lowest since we began tracking them (almost 30 years).

Over 200,000 employees cut, mostly from oilfield service companies. Producers’ employees will likely be next. Balance sheets have been decimated, or at the least damaged, making borrowing nonexistent or damned expensive. No less than 20 publicly-traded companies have filed bankruptcy (either reorg or liquidation), along with dozens of smaller, privately-held outfits. And when banks reevaluate reserves this quarter, those filings will undoubtedly increase.

So, yes, Watson… I believe maybe “we” did get a little sloppy over the past few years.

Leadership Laggard

Another easy one this month. Too many to choose from, so we called it a split-decision. A tie.

And believe it or not, I’m not even talking about ex-CEO Marty Winterkorn’s resignation over the successful multi-year VW conspiracy to cheat at emissions testing. After all (if we believe him), he was not personally aware of any wrongdoing and “was stunned that misconduct on such a scale was possible in the Volkswagen Group.” Nor does the fact that he’s going to make upwards of $48M this year for it necessarily make him a bad person.

What I’m talking about is the fact that Winterkorn is still CEO of VW’s largest shareholder (holding company Porsche SE) and Chairman of VW’s luxury brand Audi, and Porche’s CEO is coming over to be VW’s CEO “to change the culture”. I could confuse myself again by describing the Porche and VW cronies (like Hans Dieter Pötsch who is the CFO for both VW and Porsche) that are still in senior leadership roles, but that would mean I have an opinion other than:

Ethical breaches like this start at the top. This was not borne out of some lower-level manager, supervisor, or individual contributor. The senior leadership knew – through specific words, approval of resources to commit the fraud, or indirectly through a win-at-all-costs culture – but, unless that leadership team has wicked personal software skills, this ethics breach goes way down through the Porsche-VW organization.

CEOs own ethical behavior, pure and simple, and this is a leadership fail.

And this month’s Co-Loser: since we featured Jeff Smisek’s operating failures at United AIrlines, we should include him this month as a failure… again. This time, he abruptly resigned after allegedly (used tongue-in-cheek) conspiring with David Samson of the NY/NJ Port Authority. Seems Jeffie-boy wanted a reduction in United’s lease for their facilities in Newark, and Samson needed a direct flight to Columbia where he had a vacation home. Smisek gets his costs savings, Samson gets his flights. A match made in heaven. Or maybe that other, more asbestos-friendly place.Dead-last in J.D. Power’s 2014 survey of customer satisfaction, still no labor agreement for 30,000 some-odd flight attendants and mechanics, Smisek failed at every single turn that mattered to customers and employees. I’m a diehard capitalist, but shareholders cannot be the only ones happy with a company’s leadership, and they have only been reasonably satisfied for the last few months.

Of course, his resignation means he pulls in another $5M in severance, plus another $15-20M in miscellaneous consideration. Plus free first-class seats for life. United did, however, cancel his gym membership. Apparently Smisek’s Pilates was their Maginot Line…

Good riddance, Jeff Smisek. I’d wish you well, but you’ve left such a trail of carnage in your wake that I’m just not feeling the love. How about we simply say “good bye,” and leave it at that?

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